Budgeting isn't that big a deal. Too many people look at budgeting as this large sign saying "I have money trouble."

But it is far from that. Budgeting is responsible financial management. Every successful business budgets. Even the government budgets. It is necessary if you want to meet your financial goals. You may be thinking that no one you know budgets right now, but eventually they will need to. After all, you don't want to be working well into your retirement years just because all of your friends are.

Budgeting keeps you ahead of your bills. It helps you pay off your debt and save for the things that really matter to you. Stop thinking of it as a way to limit your spending or hold you back. It isn't a financial diet. It is a financial road map.

Think of it as three main parts: summarizing how you spend, controlling what you spend and planning for your future.

When you first start budgeting, the first step is to track your spending for a short amount of time to see where it is going. Set up income and expense categories to fit your spending. Using someone else's categories or budget template almost never works. We all have different expenses. It helps to keep all of your receipts for two months. Use these to create your categories and see where you are spending your money.

Make your categories detailed enough to tell you where things are going, but don't go too far and get too detailed. This will just slow you down and make you want to give up.

Once you know what you are spending and where, you can establish some spending goals for yourself. There are some places you can skim back and there are some that you can't. You have to be realistic. Don't set a goal of cutting back your grocery bill by $200 in the first month. Take smaller steps and set smaller challenges. Look for ways to reduce your spending and make it a challenge.

As you work on cutting your costs and reducing your spending, you can start working towards the financial future part of your budget. I like to include with my budget all the planning I do financially. Your debt reduction, your yearly expenses savings, your insurance needs -- this is all tied to your budget. Plan out what you need to do to get out of debt. Without your budget, you wouldn't be able to find the money to pay off your debt faster. Include in your budget categories for debt reduction, emergency savings and yearly payments. You will probably find that you have to choose one goal at a time to work towards. Pay off your debt first, then start your savings.

And keep in mind that a budget isn't something you write down and then try to stick with no matter what. Budgets move. They are adjustable. Just as your finances change, so will your budget. You may find that you have less income one month and need to readjust how much you can spend on groceries and entertainment for the month. Or you could have an unexpected bill come in. Don't just toss away your budget when this happens, use it to take care of the situation.

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I was talking to a lady the other day… in her mid-forties, who told me that they “don’t need a budget”. Naturally, my curiosity was aroused… not 5 minutes before that statement she was complaining that she had to work, and she hated it. “So why don’t you need a budget?” I asked. Her reply was simple… they “don’t have a credit card and they don’t owe any money”.

My question about how much money they have saved in a bank account was met with a blank stare and an answer of ‘Nil savings’. Their future? - Well, they have nothing apart from the employer funded superannuation which now amounts to about $35,000.

 How are they planning to spend their retirement? What activities would they like to enjoy? Have they even thought about this? You see, at the moment the old age pension is a little more than $250 per week. Now I don’t know about you… but that will barely cover my household expenses.

So while this lady has worked hard to make sure she has all her debts paid out, she hasn’t given much thought to what lies ahead in the future. She readily admitted that they’ve frittered a lot of money away each week, since they paid off the mortgage. But then she also realized that if the fridge packs it in tomorrow, they don’t even have the price of a new one in their bank account. That would mean going back into debt again.

Even if they just saved half of their old mortgage payment each week, they’d be in a much better situation when they retire and that could mean the difference between eating out in a restaurant and eating out on the back lawn. (c)

http:www.budgetbitch.com.au

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